ContractorCalculator have found data that shows IR35 is a “phony subsidised loss leader”, according to their CEO Dave Chaplin.
Based on information gained from HMRC themselves, it seems as though IR35 is failing with a terrible track record so far. Chaplin says: “For HMRC to achieve £1m in IR35 tax each year that it should be requires an average 28% success rate against the target 250 cases. HMRC’s IR35 teams just aren’t getting anywhere near that – they can’t even achieve 3%.”
The data looked at the first tax year of the taxman’s new administration framework back in 2012/13. There were a total of 256 cases and the stats aren’t too positive.
Only five of those cases have paid any additional tax and between them they paid an extra £70,000. Nearly a third, or 76, of those cases are still open with every single one being between a year and two years old. Of the remaining 175 investigations, they’ve all been closed with no extra cash brought in.
If HMRC wanted to yield an extra £1m in tax, they’d need around 65 cases bringing in £14,000 each on average. That means the taxman will need to achieve that figure on nearly all of the still open cases. Although this seems highly unlikely as their success rate so far is just 2.9%.
Chaplin didn’t hesitate to stick the boot in about IR35: “Taxpayers continue to subsidise this IR35 loss-leader that we know is phony because the tax is not bringing in any revenue from other sources. HMRC has simply been unable to substantiate its claim that IR35’s deterrent effect generates £550m of tax.
“If HMRC were a business, it would only be able to afford to pay its 40-strong IR35 compliance team about £1.06 an hour based on its own performance figures”
Image by Chris Scott.